Austerity and the mainstream: for the record

When I say that textbook macro, and the macro used by most mainstream macroeconomists, says austerity of the kind implemented in 2010 was a big mistake, I am sometimes told ‘but that was not what economists said at the time’. The names of one or two well known economists are often mentioned, or the letter from 20 economists in the Sunday Times in February 2010.

What is often forgotten is that this letter sparked an immediate response. Over 60 economists wrotein one or other of two letters published in the Financial Times that now was not the time for strong fiscal consolidation. The recovery had to be properly established first. Given that these responses were put together in haste (which probably explains why I did not get the chance to sign either), but still managed to attract over three times as many signatures as the original, I would suggest that shows pretty clearly that a clear majority of UK macroeconomists at the time followed current and textbook analysis on austerity.

Even some of the original 20 later admittedthey had made a misjudgement. So why is this letter remembered, but the responses to it are not - particularly as the responders were clearly proved right by subsequent events? Using OBR figures I calculatedthat Osborne’s austerity has cost each UK household at least £4,000, and probablymore. This number has never been seriously challenged, but I also think it is not widely known. When it comes to austerity, the problem is not and never has been mainstream macro theory or mainstream macroeconomists.